Why organisations should address the elephant in their room

Groups must end the fear of speaking up and encourage open communication to protect employees

Does your organisation have an elephant? The big uneasy one that sits in the middle of the conference room? The one that everyone pretends not to see and the bosses will not talk about?

As long as we do not acknowledge the elephant in the office, it stays invisible. Peope can claim they did not know. They can have plausible deniability.

Heaven help the soul who points out the elephant. There have been some recent tragic examples. Those who spoke up about alleged abuse by Harvey Weinstein were intimidated and silenced with non-disclosure agreements. Wells Fargo’s whistleblowers were fired.

Some US gymnasts tried to report Larry Nassar’s sexual abuses but were simply not believed. One of the gymnasts, Ally Rasiman, said: ‘If over this many years, just one adult listened and had the courage and character to act, this tragedy could have been avoided.’

Elsewhere, Volkswagen employees stayed silent about the emissions scandal, and back in 2014, in the face of unrealistic targets, Tesco’s accounting team was pressured to improve the books.

Understandable imperfection

Indeed, in many of these cases, those at the top said they did not know. They might be telling the truth. Potential whistleblowers could have been silenced before the news could reach them.

They might have sensed an elephant, but if no-one pointed it out they could hide behind ignorance or what businesswoman Margaret Heffernan calls ‘wilful blindness’.

The moment someone informs a company’s leadership of a wrongdoing, management has to do something. Once a problem is seen, liability enters and forces action.

Lawyers, auditors and compliance people often feel the adrenalin rush when wrongdoing is discovered. For others, especially management, the natural reaction is to wish the problem would just go away.

Often the thoughts running through their heads are to do with potentially missed targets and bonuses, furious shareholders, the effect on the stock price and perhaps even being fired. Instead of dealing with the issue, they wonder how they can contain the fallout or keep it quiet.

It is therefore no surprise that often the actual wrongdoing gets buried under the siege mentality to deny, gag people and shame the whistleblowers.

We need a paradigm shift. We need to remove pressure on management to be perfect and allow vulnerability, and to understand they make mistakes and talk about them. But most importantly, we need to learn from wrongdoings and evolve.

But a cultural shift of this size requires leadership commitment supported by clear processes. In the corporate world, compliance departments cannot do this alone.

Start with leadership

How a leader is known to respond to bad news determines how much their people will tell them. I spent 14 years in the oil and gas industry as a lawyer. As I became more self aware, I noticed people would watch my every micro-expression when they came to my room with bad news.

I used to be told little if I exploded. Instead, if I sat calmly with a neutral expression (and it took great restraint) and listened, they would be more forthcoming. You will not hear the full truth of an issue if you blast into full blame mode.

I once stumbled upon a group of worried engineers huddled in a ‘pre-meeting’, discussing how they would tell the boss that the wrong materials were sent out. They were putting together a slide presentation with supporting documentation that must have taken hours.

When I asked why they did not just tell him, they responded that they did not want to get anyone into trouble. Because of this, I am sure the manager heard a sanitised version of events.

Tesco

In 2014, Tesco was losing market share in the UK. Then chief executive Phil Clarke set a revenue goal of £2.8 billion. His people and even the board felt this was impossible but he was determined to make it happen. However, the numbers did not add up.

By the second quarter, they were £250 million short. Tesco’s accounting team was pressured to improve the books and as a result pulled forward unrealised forecasted revenue. Amid this two accountants resigned, with Richard Parsons, then Tesco finance project manager, saying: ‘The current situation has broken me.’

The board was unaware of the facts but still losing confidence in Phil Clarke and so replaced him, with Dave Lewis taking over as CEO on 1 September. Within three weeks, senior accountant Amit Soni compiled the evidence and it was given to Lewis through the legal team.

“Clarke, Winterkorn and Stumpf would never have said ‘go commit fraud to achieve the targets’”

The board was hastily convened and on 22 September 2014, Tesco announced to the London Stock Exchange that it had overstated its first half profits by £250 million. In one day, it lost £1.5 billion in share value, an 8% drop.

Since then, the Serious Fraud Office has charged three senior executives, including the former UK managing director Christopher Bush and former finance director Carl Rogberg, for fraud and false accounting. The trial was recently discontinued when Rogberg had a heart attack.

We see parallels to the consequences of Clarke’s impossible targets in former Volkswagen boss Martin Winterkorn’s goal of capturing the US market and the emissions scandal which followed, and in Wells Fargo’s John Stumpf’s ‘eight is great’ motto – the number of Wells Fargo bank accounts branches had to achieve for each customer.

Clarke, Winterkorn and Stumpf would never have said ‘go commit fraud to achieve the targets’, but it was made difficult for people to tell them that fraud was happening.

The Tesco accounting team was afraid to raise the fraud to Clarke, but took the opportunity when a new CEO came in. Dave Lewis broke the spell at Tesco because as a newcomer he had never promised such impossible targets. His people saw him as someone who could fix it.

Leaders need to be open to the possibility that their team is struggling to meet their demands. They have to be able to approach you without fear of being blamed or – worse – replaced.

If leaders do not want important issues to be hidden from them, they need make sure they have an open communication style.

Creating a reporting culture

In oil and gas, reporting on health, safety and the environment (HSE) is the norm. As a lawyer, I considered how those working in ethics and compliance might copy this culture.

The tragic Piper Alpha disaster, which killed 167 people in 1988, was a game changer for the industry. Safety became a core value. Today, oil companies are benchmarked for their safety performance and the industry is much safer than before.

Key to that change is the reporting culture. Workers are encouraged to report incidents, risks and positive safety observations. Companies can typically receive hundreds, if not thousands of reports a day. By normalising the process, any fear associated with reporting a safety violation is removed.

Workers provide details on the type of incident or near miss, for instance a gas release, and explain their personal intervention and the lessons learnt. A safety committee views the reports, the actions needed and monitors close out. These figures are consolidated into categories and are watched carefully by top leaders.

The reporting shows that eyes and ears on the ground reach the boardroom. Safety executives present trends and analysis so companies can understand the risks and behaviours that drive poor safety. Workers who detect serious risks are given recognition.

“As we learn from safety indicators and incidents we can implement mitigation measures and save lives. Silence can kill”

A key factor in this is the ‘no name and no blame’ rule. For example, when I worked in the oil industry, if I were to come across a worker not wearing a safety helmet in a risk zone, I would file a report. I would not name him, but use the generic ‘worker’.

On the site itself though, I would intervene and tell the worker to leave the zone and get his helmet. If the statistics show that in a week, several workers failed to wear helmets, the site head would give the entire team a serious talk and remind them to look out for each other. Repeat offenders can be sacked.

Dropped objects are a significant cause of accidents in the industry. I know this because of the thousands of people working offshore who report regularly. Even a dropped tool that hurt no one would be recorded as a near miss, a ‘leading indicator’.

As we learn from the leading indicators, and of course the actual incidents, we can implement mitigation measures and save lives. This is why I say silence can kill.

Climb the ladder

Companies can assess the safety awareness of their people by using the HSE culture ladder (see diagram). One of the key questions is whether people follow rules only when they are being watched or if it is deeply ingrained as normal practice.

The problem with typical ethics and compliance programmes is that people may not believe in them and so follow the bare minimum. Leaders should make ethical decisions because they believe it is the right thing to do, not because they fear lawyers.

Based on the corporate scandals, organisations such as Tesco and Wells Fargo displayed the lowest level: pathological. But they were caught and now pay the price.

Consider where your organisation is on the ladder and how you can bring it to at least level 3 (calculative) and ideally beyond, where people proactively ensure ethical behaviour to the point that it is ingrained in the leadership and people (level 5).

Give it time

There is no easy fix. Moving up the HSE culture ladder demands passion, perseverance and courage, from compliance heads to CEOs and boards.

Every leader needs to have an open communication style so that people feel comfortable raising any issue, from a crazy new idea to a concern that a senior is receiving kickbacks.

If you are beginning this journey, assess first where your organisation currently sits. Analyse the gaps against best corporate governance practice, set your goals with the board’s involvement and execute.

This may take several years – managing such changes typically takes three years. It may mean reviewing and changing policies, processes and structure. The key to your journey’s success is the culture, driven by strong and committed leadership.

As for your immediate first step, that is simple: address that elephant in the room.